Can my auto insurance drop me?

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Here's what you need to know...

When you buy auto insurance, you are entering into a formal contract with an insurance company. In exchange for your premiums, the carriers promise that they will pay for covered claims that are presented against your policy. You have the right to exit this contract for any reason, but the insurer doesn’t have the same luxury.

Every state has a Department of Insurance that drafts a Consumer Bill of Rights.

A Consumer Bill of Rights is a summary of your rights under the state law when the company issues you a policy.

In this bill, which every company is required to provide to new policyholders, it says just when an insurer has the right to drop a policy. Here’s what you need to know so that you can protect yourself if you ever get a notice of cancellation.

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Understanding the Importance of Auto Insurance Terms

Most people celebrate their wedding anniversaries, but not many consider their anniversary with their insurance company as very significant.

While you’re not going to jump for joy when you approach another anniversary with your insurer, your policy term does hold some significance when it comes to how your insurance is rated and renewed.

Auto insurance is sold in two different terms: 6-month terms and 12-month terms. The term is how long the coverage is afforded under the policy at the rate that you were given when the policy was issued.

During this term, your risk class won’t change unless you make changes to the policy by adding a driver, changing your address, or adding a car.

You’re Free to Cancel Your Policy Whenever You Want

If you buy a 12-month term to lock in your rates for an entire year, you’re not obligated under any type of law to keep your policy for the entire year. You could sell your car, move out of state, or suffer a disability that affects your ability to drive.

No matter what the reason, you as the insured, are free to submit a request to cancel your policy during the term.

If, however, an insurance company decided to cancel your policy in the middle of the term, it could put you in a bind. The last thing that states want is a higher population of uninsured drivers because companies dropped half of their policies mid-term.

There are only a few scenarios where insurers are free to terminate coverage.

When can the insurer drop your policy before your policy expires?

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Insurance carriers have some protections under state law but not as many as consumers do. By knowing when a company may cancel your insurance, you’ll know how to avoid receiving a cancellation notice in the mail.

Here are the most common reasons that are written into a Consumer Bill of Rights:

  • You fail to make your premium payments by the due date or before the grace period expires
  • You are guilty of lying to get the policy
  • You have been convicted of fraud in the past and didn’t disclose this to the carrier
  • You’ve made a false or fraudulent claim
  • Your license has been suspended or revoked
  • You have a physical or mental condition that affects your ability to operate a motor vehicle

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Insurance Companies Have More Freedom to Cancel Your Insurance Right After You Apply

Insurance companies can only go by the information that you provide when they give premium quotes. If you don’t disclose tickets, accidents, or household members, the insurer might approve a risk based on misinformation. All insurance companies have a limited period of time to assess an application and make an underwriting decision.

In most states, carriers have between thirty and sixty days to run reports and assess risk. During this underwriting period, the company can drop a policy for any reason. In some cases, companies simply decide not to take on certain risk classes after a catastrophic loss has occurred.

In other cases, it could be driving infractions that make you ineligible for coverage.

How will the cancellation be processed?

If your policy is canceled near the beginning of the term, the company will either give you advanced notice or they will rescind the coverage entirely. You are given notice when the decision was made because of your moving violations or some other reasons beyond your control.

Most companies are required to give you at least a 30-day written notice in the mail.

Rescissions are most common when the company has determined that you lied on your application. A rescission means that you never had coverage because you misrepresented yourself when entering into the contract.

Whatever you’ve paid into the policy will be sent back to you as soon as the coverage is rescinded.

What if the policy is being dropped at renewal?

When the policy comes up for renewal, the insurance company will underwrite your policy again to see if the carrier wants to keep you as a client. If something changes during the term, your rates could change dramatically.

Claims and tickets can also make you ineligible for a renewal. If the company decides to drop you, you’ll be sent a non-renewal notice.

You should always know your rights when you enter into any type of contract. Never let an insurance company drop your coverage for any reason without first giving you a reason. It’s your right to know why you’re being dropped.

If you are not happy with your carrier, you can always shop around and look for cheaper rates. The easiest way to shop around is to use an online rate comparison tool. Enter your zip code into our comparison tool below to get started!

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